GM’s Inventory And Incentives Spike In November, Pose Various Problems

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General Motors’ inventory levels have been steadily growing across the U.S. in the second half of 2016, with dealers collectively being in posession of 874,162 vehicles as of December 1, translating into an 87-day supply based on an adjusted sales day basis.

The figures represent a 28 percent growth in inventory levels over the past four months. By contrast, an ideal supply level is considered to be 60 days.

Though GM doesn’t break out its gross inventory supply levels by individual brand or model, an Automotive News report provided the following figures as of December 1:

Chevrolet Camaro has a 177-day (roughly 6 month) supply of 34,600 units, up from a 74-day supply in 2015.

Buick Enclave has a 114-day (roughly 4 month) supply of 16,000 units, up from a 60-day supply in 2015

Chevy Cruze has a 121-day (roughly 4 month) supply

GMC Terrain has a 114-day (roughly 4 month) supply

Industry average was 83 days supply

Problematic Developments Or A Purposeful Strategy?

A growing supply typically brings about problems, and GM has already announced that it will cut production and jobs at two of its plants — the Lordstown, Ohio complex that builds the Chevy Cruze and at the Lansing Grand River plant in Michigan that produces the Chevy Camaro along with the Cadillac ATS and CTS.

Though it hasn’t announced plans to do so, it’s possible that the automaker could cut production once again. Such a move would undoubtedly result in further workforce reductions.

However, swelling inventory might be part of GM’s plans, as explained by GM Chief Financial Officer Chuck Stevens, who back in October expanded that inventories are part of GM’s plan:

“What’s really driven the increase is filling out inventory on newly launched products and new entries that we didn’t have before, like the [Cadillac] CT6 or the [Buick] Envision as an example”, said Stevens. “Our inventory levels will be dictated by matching supply with demand. We will continue to watch inventories closely, especially cars, and will take actions if and when required.”

Swelling Incentives Quash Profitability

However, large inventory levels typically result in higher incentive payments, which decrease profitability — a metric that GM has been seeking to improve for itself and investors on Wall Street. GM’s incentive payments were much higher this November than they were a year ago.

According to official PIN data from J.D. Power, GM’s incentive spending was up 35 percent year-over-year in November by nearly $1,300 to roughly $4,900 per vehicle. The jump in GM’s incentive spending is double the $650 and 19 percent year-over-year incentive spending increase across the industry.

But during its November sales call, GM made it a point to state that, despite November incentive spending skyrocketing, its incentive spending in the first 11 months of 2016 was 11.7 percent (as a percentage of Average Transaction Prices), which is just slightly above the industry average of 11.4 percent, and well below the incentive spending of its domestic competitors and many of its global competitors.

What’s surprising is that GM isn’t sticking heavily incentivizing the Camaro nor the Cruze, at least for the time being. Instead, it’s slapping huge incentives on its most profitable vehicles — full-size pickup trucks. The GMC Sierra 1500 Crew Cab LT All Star is currently part of a Red Tag special sale that delivers a total incentive package of $9,680.

Political Angle

If GM decides to cut production jobs amidst rapidly-growing inventory, then the move might spark controversy and unwanted attention from President-elect Donald Trump, who has been highly vocal about retaining and growing U.S. manufacturing jobs during his campaign for presidency.

Interestingly, Trump has yet to call out GM in this regard, while being very vocal about Ford’s production operations in Mexico. Meanwhile, the automotive industry at large is looking at Trump’s administration to review and lower the corporate fuel average fuel economy (CAFE) standards that they agreed to with the Obama administration in 2012.

Old GM ≠ New GM

It’s worth noting that what led GM to its infamous 2009 bankruptcy proceedings was a strategy that resulted in the automaker building more cars than people wanted to buy. That strategy was partially the result of an agreement with the United Auto Workers (UAW) union that guaranteed workers close to full pay even if production was cut, making it less expensive to run a plant and produce vehicles despite low real-market demand.

Wiggle Room Is A Luxury

As it currently stands, GM has quite a bit of wiggle room in adjusting production, inventory supply, and the ensuing profitability-draining incentives. The automaker has elected to idle five of its U.S. plants in January as a way to return to a 70-day inventory supply while also cutting a shift at its Detroit-Hamtramck plant.

Stopping CAFE is only part of the problem. You have to make car models, even just for non-CARB states that fill the demand.

Impala on Alpha, for example. Huge opportunity there now to bring back the Chevy SS and take on the Dodge Charger, with LT1 and LT4.

GM has to accept that it bet the opposite of other auto makers, expecting a different reality today. That means it needs to not just accept drops in sales now, but prepare new models for the next eight years.

“GM has to accept that it bet the opposite of other auto makers, expecting a different reality today. That means it needs to not just accept drops in sales now, but prepare new models for the next eight years.”

I think that you’re making that conclusion based on half the information. Once we see the glut of incoming crossovers, I think we’ll see that GM actually bet the right way.

GM’s total sales will be lower than last year as well as most other manufacturers .
The last 2 or 3 years the industry has set sales records , but the market is saturated with new consumers that have bought new vehicles .
Car sales are down as well as truck sales but big SUV’s still are selling well and that part of the market may start to slow too . The Big 3 will have most of their assembly plants down for the Christmas holiday which might help lower inventory levels a bit . I’ve even heard that that holiday shut down may be longer for some plants .
Plus when the workers come back they may see the assembly lines slow down and with the dis-placed workers go to training classes for new products that may be coming their way . I’ve seen this happen to teams before . It;s a good way for the GM to utilize that time instead of laying off workers or shutting down a shift which is expensive to do .
There isn’t much the President-Elect can do anything about .
In my home state commercials are running for full size loaded Chevy trucks with $10,000 dollars off sticker to move the sheetmetal off their lots . If you are in need of such a vehicle now would be the time to buy .
The fact is all of this is going to depend on our economy and if we slide into the recession some analyists are warning about .

The Enclave and Terrain are both going out so there would be a build up of supplies as they kill lines and start new ones for new product. Also not the old Terrain will mostly go to fleet sales to protect the value of the new ones. at intro.

The Camaro has suffered from price increases and people trained to wait for incentives. Once the incentive are applied the sales improve every time. Add that to the fact the coupe sales are decreasing for everyone. Even the Mustang is down. The key will be to best manage production and incentives on this model from now till July.

The Cruze was behind and now they have caught up. I expect them to close off the extra shifts and that should decrease the reserves. Keep in mind that many of the people working the extras shifts are over time employees so they will just work less hours.

GM like the story says has more options this time to manage inventory. I expect they will do much better but we will have to see how it goes.

The auto market has been expecting a slow down and I think it is upon us now. Most companies will have increases in inventories on many products. The key will be to manage it well.

Might note GM has spent the last 5 years working on increased ATP and this is where it pays off. They will be able to offer incentives yet make money. They will be able to sell lower volumes and still make money. This is where the work in the last few years will pay off. Other brands have not done this in some cases and some will feel the pain.

Wall St knows of GM’s actions. I expect they will not drop a lot but all auto stock will be slowing down and decreasing with the decline in the market. It already has for the most part. The coming turn down was expected the only mystery was how the economy would be when it happened. Since the election companies and markets have all increased now the results are determined. It should be a business friendly market so the Market should remain stable for a good while baring any unforeseen wars or threats.

From the current uncertainty with slowing sales , they should seek long-term fleet contracts. When I’ve driven an aging car, I rented more often. Anecdotal, I know. But, last year, 2 of the 3 cars I rented were wear&stain-showing, 40k-mile cars.

Articles usually report Subaru and with lower inventory, while also kissing their behind. Why not follow similarly and gear things down before any problems?

I would’t mind hearing people speculate how an auto market downturn could shake out.

GM, Ford, Toyota, all should be fine. They all will have issues but they have the rest of their suv lines and or trucks to support them.

Your secondary sized companies like Subaru and Honda will be fine as they are smaller and easier to control.

The Luxury brands will be fine due to the higher ATP.

Now keep this in mind this is all based on a stable economy and just the slow down of the auto sales.

The ones in trouble will be FCA, Mitsubishi, Suzuki, etc.

The wild card is VW as the final cost of the diesel issues is yet to be seen. Their sales have remained well globally but depending on the cost it could force a sale of Bentley to pay the loans. That is worst case.

The keys to the future is higher ATP, Keep Trucks and SUV models selling and keep away from incentives accept for the designated models like the outgoing Terrain and Equinox.

Limited incentives will be in play but not something they will want to live on as like Heroin you can not get hooked again and people are already waiting for them, With the higher AT it will give them some room.

The first six months will be telling as to how they deal with this.

We will need to stop looking at the monthly sales numbers and focus on the profit number for the quarter and half as this is where the battle will be won or lost.

These plant closures and the accompanying inventory and sales numbers are more bad news for Johan over at Cadillac. The only thing that sells at the former ‘wreath and crest’ division are the big rebadged Chevy SUVs (Escalade, Escalade ESV) and the FWD products also based on commodity car architectures; the XT5 and XT6. The products done right, or at least done mostly right, which include the RWD Alpha ATS and CTS and the RWD Omega-based CT6 aren’t moving off the dealers’ lots very fast.

Everything JdN wanted to eliminate, it looks looks like he’s stuck with and the products once hailed as the future, may not hang around very long. Personally I think this tells us that the foray into BMW territory needs to be re-thought. The brand may not be able to support German-level pricing as Cadillac is still regarded as a bargain brand luxury car. Also, why would anyone pay a BMW price and get a Cadillac.

I would argue they have two options. Either cut prices to offer buyers a cheaper BMW-like product or develop products that aren’t BMW wannabes so there is a compelling reason to go with a Cadillac. The ELR is the poster child for the former. It was a product way overpriced. If it had been $25,000 cheaper it might’ve found a market. The Escalade is an example of the latter. Despite it being little more than a glorified Tahoe, it is worlds apart from the persona of a BMW SAV (SUV) so buyers willingly pay as much or more for a Cadillac because they prefer its big, bold, ostentatious, tradItional Cadillac nature. It is, to me, the most authentic Cadillac in the line and interestingly there’s no plant closure contemplated for Arlington. I think that should signal to Cadillac that the latter path is the one to take.

i was under the impression that cadillac already undercuts the likes of bmw as far as pricing was concerned. are you saying that an equivalent bmw 3 series/5 series is more or less the same price as an ats/cts?

I think he means a reversion to the Lutz era, where Pontiac was GM’s blue collar BMW fighter – Solstice aping/besting the Z4, and the G8 taking on the 3-series and 5-series.

In 2008, that failed because of gas prices (where BMW had domestic/EU sales to fall back on, and luxury sales to profit from domestically). Cadillac doesn’t have that breathing room today, aside from Escalade.

I think the Pontiac-Cadillac strategy isn’t a bad one – flood the market with 3-series killers at half the price, and make the base model, well, a Pontiac in terms of equipment.

But leadership doesn’t see it that way. They are trying to dig in for a 20 year war, that may be pointless to fight in 20 years when autonomous takes over.

My opinion – one more emboldened by Trump’s win – is split the difference. Make Pontiac versions of the ATS (G6), CTS (G8), and their mid-engine roadster work (Solstice), and sell them at half the price… allowing Cadillac to move upmarket, and use comfort/options to split the market.

And in 20 years, when autonomous takes over – scuttle Pontiac and make Cadillac a bunch of luxury Voltec-powered people movers.

California has pushed that they get served up subsidized electrified cars. Screw that.

A few years ago there were many internet commenters saying Cadillac should have gotten voltec first. The expensive tech for the expensive cars. It probably should’ve been an XTS sized car. The BMW chasing after the early CTS is the similar to eating a great meal and then almost everyday the same thing. Meanwhile, Elon Musk grabbed the tech-leader position by getting people to conflate Silicon valley’s image with the actual tech of toy cars.

Whatever vehicles GM as a whole offers, they’re not strong enough to not be selective. I’m wondering if on the corporate side, it’s time to cut some deals. If Opel is legitimately not profitable, maybe look to sell the German factories to someone that wants more into the E.U. And at same time buy up a redeemable struggling maker to stay in Europe. Now, I’m just rambling.

If I wasn’t suffering from a severe case of math curse, I might be able to cypher out a couple of things:

First, I wonder at what point declining volume supercedes increased ATP? (I don’t know, just asking). It’s one of those X-Y axis things.

And second, if China already slaps a 35% import fee on foreign products, and we charge them nothing, and they keep 50% (given the 50-50 deal), and they hold over a trillion $ in US debt, and still threaten sanctions – I don’t know where I’m going with this. It doesn’t seem like we’re dealing from a particularly strong hand.

China also makes the hybrid CT6 and LaCrosse, which I wouldn’t mind seeing how they do here (kind of like the first wave of Envision) …

I dunno – Alex always seems to do a good job of cyphering these things out, so I’m counting on you. Hopefully, they are nothing but thinly-veiled threats. But lots of moving parts, yes?

Whenever there is a dispute with a manufacturer, the response from the Chinese Communist Party is always the same, “Comply or leave China”. GM has already been told when they wanted to disseminate Volt technology throughout the Chinese industry. Same thing happened to Apple a few years ago where they froze all Apple shipments. The issue was quietly resolved in a few days.

The Chinese needed capital and technology in order to build their industry. They have clearly stated that the market share for Chinese brands will need to go up and that will be at the expense of foreign brands.
And I haven’t even touched what would happen in case of a military dispute…

What does JDN have to rethink? People are not buying cars there buying crossovers/SUVs and trucks, that’s what Cadillac main focus is going too be into the future, these cts,ats,ct6 are not JDN cars these cars were build before he ever got there, which he will replace and upgrade models.(CT6) I have said it before that Cadillac’s, flagship is going too be a four-door five passenger lift-back . Crossovers, SUV’s, trucks is what gm is turning it focus onto, is what people are buying .

For those who voted this down, think about this: You couldn’t build a single car (any brand including Asian and German ones) without Chinese components. Other than many components, where to you think that 100% of the microprocessors come from? Most of those improved interiors, electronics…

In fact, I wonder if the US could even build a toaster without Chinese components.

I was at AAPEX in November which include suppliers to the OEM. It was shocking to see how the industry is TOTALLY dominated by Chinese suppliers.

The Detroit brands today are basically assemblers of Chinese components.

Maybe their anti-capitalism fight against Tesla will pay off. Maybe they’ll sell 10k bolts next year before Tesla releases the Model 3. Maybe someone will actually buy a Cadillac. Who knows? GM basically lacks the management talent and design chops to compete against the Germans and Tesla. On the flip side, the trucks are good.